Must-know: Why Wendy’s is focusing on the Canadian market

Market Realist

Must-know: Wendy's quarterly overview for 2Q14 (Part 5 of 9)

(Continued from Part 4)

Canadian market initiatives

Wendy’s (WEN) management sees a growth acceleration coming from its Canadian market going forward. Wendy’s plans to sell 135 company-operated restaurants in Canada to franchisees. Additionally, the company has a 50% share in the real-estate joint venture, “TimWen,” with Tim Hortons in Canada.

Unit growth and penetration

The system optimization initiative will help Wendy’s penetrate and grow in the Canadian market more quickly, according to management. This is because the franchise owner takes full responsibility of costs such as labor, occupancy, and food and beverage. Usually a franchise model helps free up capital for the franchiser—such as Wendy’s, McDonald’s (MCD), or Yum! Brands (YUM)—to invest in further expansion activities.

The sales proceeds from these restaurants will be reinvested in the further development of and solutions for franchised restaurants. To learn more about the pros and cons of a franchise business model, please click on this link.

An investor can get exposure to the restaurant industry through ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Forward guidance

Wendy’s management plans to grow the Canadian restaurants by one-third and to  re-image 60% of Wendy’s restaurants by the year 2020. Further, with this initiative, management has stated that it expects an improvement in the quality of earnings, which will come from higher rental income and royalties.

Continue to Part 6

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